As result, from 1997 a sustained negative tendency of direct investments levels developed. According to the Kyrgyz National Statistic Committee data, in 1998, Kyrgyzstan gained $136,000,000 as direct investments, and in 1999, it was $108,000,000; in 2000 the figure was about $90,000,000. In 2001, $90,000,000 were invested in the state.

The investment climate in Kyrgyzstan is already problematic for several reasons. The internal economic resources are too small, local administrative decrees run counter to main laws, the condition of communication infrastructure is bad, the area of arable land is limited, and the policy of neighboring countries concerning transportation fees is unfavorable.

Investors also complain of bureaucratic red tape, corruption, and the absence of personal security guarantees to businessmen. Flawed laws, as finance specialists say, admit different interpretations, which often lead to conflict situations. Serious problems are caused by an uneven distribution of direct foreign investments in the regions of the republic, which influences the prosperity level of each of them. It leads to stagnation of some parts of the country, increases in migration, strengthening of social strains, etc.

However, the economics of the Kyrgyz Republic also has positive aspects for attracting direct investments. Kyrgyzstan is a World Trade Organization member, which opens a wide scope for export. There are no limits concerning currency transfers and convertibility (Unlike Uzbekistan, for example). Inflation rates are restrained, and the national currency is stable (although a significant volume of external debts make it vulnerable for unexpected shocks).

The state has an enormous potential in the sphere of tourism due to its rich culture, glorious landscapes, and friendly people. Kyrgyzstan may also become an active transit country, if its road, railroad and air transport infrastructure is improved and if local free economic zones are used as import-export centers. There is potential of hydroelectric power development in Kyrgyzstan, if this sector is privatized and if the arguments with neighboring countries on water supplies are managed. The republic has advantages in human resources, with a highly educated yet inexpensive labor pool. Climate is pleasant, and prices of real estate are quite reliable for foreigners.

The Kyrgyz government, in an effort to improve the investment climate in the country, has confirmed a general plan of measures called Investments Matrix. Its purpose is to remove barriers hardening the flow of direct investments into the country. The document was put together by the government of KR, potential investors, different associations, parliament deputies, and international financial institutions.

Foreign investments in Kyrgyzstan are regulated by the law “On foreign investments in the Kyrgyz Republic”. It does not limit the volume of external financial injections into the country. Foreign investors are allowed to own 100 percent stocks of local enterprises. Foreign employees of joint companies may automatically be given visa with permission to live and work in the country.

In 2001, the local parliament has confirmed the law on private property for land. It lets foreign companies own city real estate and rent agricultural ground for 99 years. In June 2002, the government established an investor help service “One Stop Shop”, which provides necessary information, administrative, and consultative assistance to any businessman.

Kyrgyzstan is a member of the Central Asian Economic Community uniting republics of the region, and of the Customs Union of Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Belarus, and has a visa-free regime with 27 states. However, significant investors do not strive for starting business in Kyrgyzstan yet. Analysts say there still is a good deal of work to be done in the country.